Treasury Bonds
- Treasury bonds are interest-bearing securities with maturities over 10 years.
- Treasury resumed issuing 30-year bonds at the February 2006 refunding.
- Treasury bonds pay interest on a semi-annual basis.
- When a bond matures, the investor receives the face value.
Price vs. Yield to Maturity
The price of a fixed rate security depends on the relationship between its yield to maturity and the interest rate. If the yield to maturity (YTM) is greater than the interest rate, the price will be less than par value; if the YTM is equal to the interest rate, the price will be equal to par; if the YTM is less than the interest rate, the price will be greater than par. See an example of price vs. yield to maturity.
When purchasing a Treasury bond, any interest accrued since the last interest payment is added to the bond purchase price. At the next interest payment date the investor receives the full interest payment.
Use the following formula to figure accrued interest:
| A = P x r ( d / t )/2 | A = Accrued interest P = Face value r = interest rate of Treasury bond d = # of days since last coupon payment t = # of days in current coupon period |
Example: A 5% 30-year bond ($1,000 principal) is purchased 91 days after the last coupon payment. The current coupon period contains 182 days.
A = 1000 x .05 (91/182)/2 , solving
A = $12.50
Methods of Purchase
- Treasury bonds can be purchased by individual investors in TreasuryDirect.
- Treasury bonds can be purchased by individuals, organizations, fiduciaries, and corporate investors through a broker or financial institution. Treasury bonds cannot be purchased through Legacy Treasury Direct, starting in January 2007.
- Institutions may establish a TAAPS account to bid for Treasury securities directly at auction. Learn more about establishing a TAAPS account.
Maturity Terms by Purchase Method:
| Maturity Term | TreasuryDirect | Legacy Treasury Direct | Broker/Financial Institution | TAAPS |
| 30-Year Bond | Yes | No | Yes | Yes |
Auction Frequency
The 30-year bonds are auctioned at the Quarterly Refundings in February and August and reopened at the Quarterly Refundings in May and November. The reopened security has the same maturity date and interest payment date as the original security, but has a different issue date and usually a different price.
For tentative auction dates, see the Tentative Auction Schedule , or for actual scheduled auction dates, see Upcoming Treasury Marketable Securities Auctions. Institutions may also sign up for e-mail notification for auctions.
Bidding
Auction bids for Treasury securities may be submitted as noncompetitive or competitive.
- With a noncompetitive bid, a bidder agrees to accept the yield determined at auction. A bidder is guaranteed to receive the full amount of the security bid.
- With a competitive bid, a bidder specifies the yield that is acceptable. This bid may be accepted in the full amount if the rate specified is less than the yield set by the auction, accepted in less than the full amount requested if the bid is equal to the high yield, or not awarded if the rate specified is higher than the yield set at the auction.
To place a noncompetitive bid, an individual investor may use TreasuryDirect. Individuals, organizations, fiduciaries, and corporate investors may use a broker, or other financial institution. Thirty-year bonds are not available in Legacy Treasury Direct, starting in January 2007.
To place a competitive bid, a bidder must use a broker, financial institution, or have an established TAAPS account.
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| Original Issue Rate: | The yield determined at auction.
See rates in recent auctions |
| Minimum purchase: | $100 |
| Maximum purchase: | Non-competitive: $5 million Competitive: 35% of offering amount (see types of bidding) |
| Investment Increment: | Multiples of $100 |
| Issue Method: | Electronic |
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Redeem, Reinvest, or Sell
A Treasury bond can be held to maturity or sold before it matures. If a bond is held until it matures, the bond's principal can be used to buy another security or the bond can be redeemed. See more information on how to redeem, reinvest, or sell.
Tax Considerations
Interest on Treasury bonds is exempt from state and local taxes but is subject to federal tax. See additional information on tax considerations.
